BIR Ruling [DA-685-99]

December 10, 1999 BIR RULING [DA-685-99] City & Land Developers, Inc . 2nd/3rd Floor, Cityland Condominium 10 Tower 1, 6815 Ayala Avenue Makati City Attention: Atty . Emma G . Jularbal Legal Counsel Gentlemen : This refers to your letter dated April 29, 1999 requesting for a ruling on the following issues: 1) Whether or not the distribution in liquidation or transfer of the sole asset or real property of Carvintage Trader, Inc. (Carvintage), in the form of a liquidating dividend to its sole stockholder, without any consideration is subject to creditable withholding tax and documentary stamp; and 2) That the loss sustained by a stockholder because of the said distribution of asset is a deductible loss. It is represented that on April 17, 1997, all the 100,000 shares of stock of Carvintage Trader, Inc. was purchased by City and Land Developers, Inc. (CLDI) at a total price of P110,661,750.00; that on June 4, 1997, the Securities and Exchange Commission (SEC) approved the dissolution of Carvintage by shortening its term; that upon dissolution of Carvintage, the only asset of the corporation is a real property located at Lancaster Ave., Pasay City; that for the purpose of liquidation, the same was declared as a liquidating dividend to be distributed to its sole stockholder or record, which is CLDI; that upon dissolution, it was discovered that the fair market value of the property as found in the schedule of zonal valuation for the property is P20,000.00 per square meter or a total of P59,300,000.00; that as a result of the distribution of the asset of Carvintage, CLDI sustained a loss considering that the fair market value of the asset is less than the acquisition cost of the shares of stock. prcd In reply, please be informed that transfer of the sole asset or real property of Carvintage in the form of a liquidating dividends shall be subject to the documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 270-91 dated September 23, 1991.) In all cases involving sale, exchange or any disposition of real property as in this case, where real property is being distributed, by the corporation to its stockholders as liquidating dividends, the tax base for DST purposes is the fair market value or zonal value of the real property. (RMO No. 41-91.) After payment of the corresponding DST, the parcel of land conveyed by Carvintage in the form of liquidating dividends may be registered by the Register of Deeds concerned in the name of the stockholder. The conveyance of the said parcel of land in the form of liquidating dividend shall not be subject to the creditable withholding tax on sales, exchanges or transfers of real property under Revenue Regulation No. 2-98. (BIR Ruling No. DA-367-99 dated June 24, 1999) Moreover, when a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible loss, as the case may be, pursuant to Section 73(A) of the Tax Code of 1997. cdll This ruling is being issued on the basis of the foregoing facts as represented. However, if it will be disclosed that the facts as different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)